RPSM09102350 - Technical Pages: Member benefits: An unsecured pension: Limit on unsecured pensions: When the member dies or reaches age 75 before 6 April 2011 and transition to pension drawdown
This guidance only covers members who became entitled to an unsecured pension before 6 April 2011. If the member reached age 75 between 22 June 2010 and 5 April 2011 you should also read the guidance in RPSM17100000 onwards.
If the member became entitled to their pension on or after 6 April 2011 then see the guidance at RPSM09103500.
Unsecured pension limits where the member dies or reaches age 75 before 6 April 2011 and transition to pension drawdown
|[Para 9(2), Sch 29]|
Where the member dies or reaches the age of 75 in a pension year that pension year will be deemed to end immediately before that event. (For reaching age 75 this will be just before midnight, 23:59 hrs, on the day before the member’s 75th birthday.)
For the purposes of calculating the pension limit that part pension year will be treated the same way as if it had continued for a full 12 months. So if the maximum unsecured pension has already been paid for that pension year there is no concern.
The shortened pension year will be the last such year. Once the member dies or reaches age 75 no further unsecured pension may be paid.
- where the member reaches age 75 is dealt with on RPSM09102080, and
- where the member has died is dealt with on RPSM09102140.
Hilary is 75 on 1 April 2007. At that point she is drawing an unsecured pension, as income withdrawal, from a money purchase arrangement. She is in the middle of a pension year running from 1 February 2007 to 31 January 2008, with a maximum unsecured pension of £4000 per annum.
As Hilary has reached the age of 75 the pension year is only deemed to run from 1 February 2007 to 31 March 2007 (2 months). However, the £4000 maximum applies to that shortened pension year in the same way it would have done if it had continued for 12 months. So if Hilary had already drawn £4000 of income withdrawals in those 2 months then there would be no repercussions.
Short-term annuity contracts
A short-term annuity contract cannot be purchased by a scheme administrator for a period that runs past a member’s 75th birthday. As we are dealing with a known date of occurrence the level of unsecured pension that will be provided in any shortened final 12 month period will be a question of fact under the contract as drafted at the point of purchase, and would have been reflected in the cost of purchasing that contract. The unsecured pension limit applying at the time of purchase will of course also be a factor.
Where the member dies the short-term annuity contract will provide for payments to stop immediately, unless the contract has been guaranteed for a set period. This will of course be a factor that will be reflected in the cost of the annuity contract.
Changes from 6 April 2011:
There is no change to the position if the member dies.
If the member reaches age 75 from 6 April 2011 an unsecured pension fund becomes a drawdown pension fund and any pension taken after that date is taken as drawdown pension. The unsecured pension year becomes a drawdown pension year and ends on the day the unsecured pension year would have ended. In other words any unsecured pension year beginning on or after 7 April 2010 becomes a drawdown pension year for tax purposes on 6 April 2011 but the year is treated as starting (and ending) on the same dates as the unsecured pension year started (and would have ended). The basis amount and the maximum annual amount that can be taken as drawdown pension during this drawdown pension year remain the same as could be taken during the unsecured pension year it replaces, that is 120 per cent of the basis amount that was calculated at the start of the last unsecured pension reference period. The reference period ends at the end of the drawdown pension year in which age 75 is reached. For subsequent drawdown pension years, as the member is now aged over 75 the new rules apply so the basis amount is reviewed annually and the member can take 100 per cent of this amount as drawdown pension, see RPSM09103500.